Pakistan pays Rs.25 bn to clear oil companies’ bills

Islamabad, June 2 (IANS) With Pakistan freezing domestic prices of petroleum products, the government has been forced to give state-owned oil marketing companies Rs.25 billion to enable them to clear their bills. The government has frozen domestic prices for a fortnight, the second time it is doing so.

“In the wake of rising (global) rates, the federal government was left with no other option but to arrange financing of Rs.25 billion to pay the outstanding bills of the oil marketing companies from the national kitty. The interest rates are on the rise and banks are reluctant to arrange financing for the companies at previous rates,” The News reported Monday. The outstanding bills are on account of price differential claims (PDCs).

“Yes, we have paid Rs.25 billion from our budgetary resources to clear their outstanding bills,” it quoted a top official of the finance ministry as saying.

The government had underestimated the PDC bills during fiscal 2007-08 that ends June 30 and this could mount to Rs.153 billion, the official added.

Asked how, despite this, the government would manage to curtail the fiscal deficit and bring it within 6.5 to 6.7 percent of the GDP during 2007-08, the official resorted to number crunching.

Since there was a time lag in clearing the PDCs, some of the payments would be reflected in the next fiscal, he explained.

With Prime Minister Yousaf Raza Gillani ordering a second freezing in oil prices last week - the first was on May 15 - the PDCs “are increasing manifold”, The News said.

“The faulty fixation formula for oil marketing companies also ensured windfall profits for the giant oil sector companies when prices increased in international market,” it added.

After the current freeze, the government is providing a subsidy of Rs.39 per litre on diesel and Rs.7 per litre on petrol. Petrol is currently priced at Rs.68.81 per litre and diesel at Rs.50.12 per litre.

“Political compulsions are forcing the government to freeze oil prices as a surge in prices would fall on the heads of inflation stricken masses already groaning under the burden of unprecedented increase in almost every commodity, particularly food items,” The News noted.

Earlier too, the finance ministry had issued a sovereign guarantee to secure a Rs.20 billion loan from a consortium of banks for making payments on account of PDCs.

The oil subsidy “is one of many factors keeping Pakistan’s economy under pressure. Its volume is now a question mark for policy makers and certain tough steps are required to achieve fiscal discipline”, The News noted.